Construction Law/FIDIC sub-clause 2.5
QUESTION: I represent the Employer and I am dealing with the sub-clause 2.5 with the Contractor. The Contract is FIDIC Yellow Book and the works are done in Armenia.
The Employer has a claim because of procuring equipment which could not be installed on construction sites as the Contractor did not respect the deadlines in his submitted Programme to the Engineer. The Employer incurred cost for the storage of this equipment in a far-away place which offers storage conditions for this equipment in addition to the transport, unloading in the storage place. The Employer will also incur other extra costs for reloading, transport and unloading in the construction sites. We started applying SC 2.5 as stated in the SC by sending a notice to the Contractor, but the Contractor replied requesting the Employer to give the condition of the FIDIC which is the base of the claim. In fact, we couldn't find such a condition but we think it could be "otherwise in connection with the Contract …”.
I think that Sub-Clause 2.5 applies to any claims the Employer wishes to make (whether or not they are intended to be relied on as set-offs or cross-claims) and we found that SC 8.3 (Programme) “..The Employer's Personnel shall be entitled to rely upon the programme when planning their activities.” could not be used as a base for the claims under SC 2.5.
My question is: Can we use "otherwise in connection with the Contract …” in our case?
ANSWER: Dear Ara,
Clause 2.5 states 'The particulars shall specify the Clause or other basis of the claim'.
Clause 8.6 states 'If these revised methods cause the Employer to incur additional costs, the Contractor shall subject to Sub-Clause 2.5 [ Employer’s Claims ] pay these costs to the Employer, in addition to delay damages (if any) under Sub-Clause 8.7 below.'
In the first instance, The Employer has the right to claim reimbursement of extra costs if the Contractor is in delay and remedial action is needed to recover any delays.
Secondly, there is the basis of natural justice. The Employer has the right to be reimbursed for any costs due to a breach by the Contractor. Although the programme is not a contractual document and an absolute requirement of the Contract, clause 8.3 allows the Employer to base his actions on the proposed programme. A failure to comply with the programme is a Contractor risk and the Employer is entitled to reimbursement of any extra costs arising out of this Contractor risk.
I hope that you have given the required notices requesting updated programmes and that the Contractor did not give notice in time of the effect of his delays so that you had time to mitigate the effect of these delays.
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QUESTION: Dear Peter,
Thank you so much for your response.
Although several times we requested the Contractor to submit the revised methods under sub-clause 8.6, but the Contractor did not submit these methods. Therefore, I see we can't put our claim for extra equipment storage and other costs under this sub-clause.
Regarding Sub-Clause 8.3, 4th paragraph, last sentence which reads “The Employer’s Personnel shall be entitled to rely upon the programme when planning their activities.”, I see this is primarily intended for planning and rescheduling rather than this particular situation and I think our claim will be weak to base on this sub-clause.
Yes, the Contractor did not give notice in time of the effect of his delays so that we had time to mitigate the effect of these delays. Also, the Completion Date of the contract is 31 December 2015, which means delay damages will be applied after that according to the Contract, which according to sub-clause 8.7 “These delay damage shall be the only damages due from the Contractor…” ).
Then, I am disappointed to see there is no sub-clause to be our legal base for our claim for extra equipment cost.
I would submit the claim in any case for either of the reasons above. I see no reason why clause 8.3 is not applicable. There are no restrictions in the clause so that it applies only to planning of inspections or similar. Consider what would happen if you did not supply the equipment in accordance with the Contractor's programme.
Clause 8.7 refers to damages for delay, not for other expenses due to the Contractor's breach of contract. It is not intended to cover costs arising out of the Contractor's default during the implementation of the Contract. It is intended to cover costs such as costs arising out of the inability to move into a new building, loss of income from rent or rent for existing properties, which cannot be vacated.
I will ask various colleagues to see if they have a different solution and forward them to you as appropriate.
The general consensus is that you have a valid claim for reimbursement of your extra expenses and that you should submit it to the Engineer for a determination and possible deduction from a future IPC.